Nautilus, Inc. reported net sales for the second quarter 2012 totaled $39.6 million, an increase of 14.0 percent compared to net sales of $34.7 million for the same quarter in 2011.
Gross margin for the second quarter of 2012 improved 150 basis points to 43.4 percent of sales, compared to 41.9 percent for the same quarter in 2011. The increase in gross margin was primarily due to sales of higher margin Direct products. Operating margin for the second quarter of 2012 improved 670 basis points over the same period last year.
Loss from continuing operations for the second quarter ended June 30, 2012 was $0.5 million, compared to loss from continuing operations of $2.2 million for the same period last year. Loss per diluted share from continuing operations for the second quarter of 2012 was 2 cents, compared to 7 cents for the same quarter a year ago. The significant improvement in results from continuing operations reflects stronger sales, improved gross margins, and lower operating expenses as a percentage of sales.
For the six months ended June 30, 2012, income from continuing operations was $2.2 million, compared to loss from continuing operations of $1.1 million for the same period last year. Income per diluted share from continuing operations for the first six months of 2012 was 7 cents, compared to loss per diluted share of 3 cents for the same period a year ago.
Bruce M. Cazenave, Chief Executive Officer, stated, “Our second quarter results illustrate continued steady progress in many of the focus areas of our business. Our Direct business continued its strong momentum by posting revenue growth, an increase in gross margin and further improvements in operating expense leverage. While our Retail business generated significant revenue increases in the quarter, we believe this was partially due to a shift in some of our retail partners’ buying patterns in to the second quarter in anticipation of previously announced price increases affecting the second half of 2012.”
The company reported net loss (including discontinued operation) of $0.2 million for the second quarter of 2012, compared to net loss of $3.3 million for the second quarter of 2011. Net loss per diluted share for the second quarter of 2012 was 1 cent, compared to 11 cents for the same quarter a year ago. Net loss for the 2012 second quarter included income from discontinued operation of $0.3 million, or 1 cent per diluted share, compared to loss from discontinued operation of $1.1 million, or 4 cents per diluted share, for the 2011 second quarter.
Mr. Cazenave continued, “It is gratifying for our team to generate such strong revenue growth along with gross margin improvement during our seasonally slowest and traditionally weakest financial quarter of the year. With this improved performance, we now have confidence to invest in a more robust innovation platform, applying new learning from recently completed consumer research, to better position the company in terms of product diversification and improved top and bottom line growth in the future. Short term, we do anticipate softness in the Retail business as our retail partners continue to rationalize their fitness product offerings across their entire supply base. As a result of this softness and the incremental investment to launch new products, we believe that the improved operating results we experienced in the first half of the year are not indicative of likely results for the remainder of the year. We will continue to focus on implementing our long term business strategy and, despite the added new product launch investments and the challenges in Retail, we expect to achieve profitability in the second half of this year.”
Segment Results
Net sales for the Direct segment were $24.7 million in the second quarter of 2012, an increase of 10.0 percent over the comparable period last year, reflecting strong demand for the company's cardio products. The higher sales were also partly driven by increased advertising effectiveness and higher U.S. consumer credit approval rates, which rose to 30 percent in the 2012 second quarter from 24 percent for the same period last year.
Operating income for the Direct segment improved to $1.0 million for the second quarter 2012, compared to Direct segment operating loss of $1.0 million for the second quarter 2011. This improvement reflects stronger sales as well as a 290 basis point reduction in Direct selling and marketing expense as a percentage of sales. Gross margin for the Direct business was 55.1 percent for the second quarter of 2012, an increase of 510 basis points compared to the second quarter of last year.
Net sales for the Retail segment were $14.0 million in the second quarter 2012, an increase of 22.9 percent compared to the second quarter last year. As previously disclosed, in the first half of 2012, the company took certain steps to stabilize declining gross margins in its Retail business. These steps included a price increase for the back half of 2012, which resulted in some Retail customers accelerating a portion of their purchases into the second quarter compared to their typical buying patterns.
Operating income for the Retail segment was $1.1 million, a 24.8 percent increase over the same quarter last year mainly attributable to higher sales. Retail gross margin was 19.2 percent in the second quarter of 2012, a decrease of 250 basis points from the same quarter a year ago.
Balance Sheet
As of June 30, 2012, the company had cash and cash equivalents of $16.1 million and no debt, compared to cash and cash equivalents of $17.4 million and $5.6 million of debt at year end 2011. Working capital was $16.8 million, compared to $19.4 million at year end 2011; the decline in working capital was mainly the result of paying off the $5.6 million of debt during March of this year. Inventory as of June 30, 2012 was $12.6 million, compared to $11.6 million as of December 31, 2011. The company believes it has adequate inventory to support current demand levels.
